Omnova solutions (NYSE: OMN) Essential to Builders, ride it with the housing Recovery

Small to mid-cap growth stocks are the best investment in a precarious environment when the entry point is right. Smaller cap stocks generally provide a better return for investors as they tend to be much more sensitive to market fluctuations. When dealing with temporary macroeconomic situations that bring down the overall market such as the fiscal cliff and the debt ceiling, investors need to find those stocks that offer the most bang for their buck. Small cap companies with rock solid balance sheets and good products are by far the most attractive securities. Those companies will little debt and an intriguing service or product line are appealing as they offer long-term growth for investors willing to hold.

These companies tend to be referred to as hidden gems or treasure that has yet to be discovered. Lately any stock tied to the housing market has been lifted as a recovery has slowly begun, and those companies who provide the sector have been benefitting. One company that provides products that are essential to builders, business and residential housing is Omnova Solutions. Omnova Solutions (NYSE: OMN) provides emulsion polymers, specialty chemicals, and surfaces for commercial, industrial, and residential customers worldwide. The small specialty chemical company, which has around a $323 million market cap, has strong cash flow and solid operations, and owns plants that are difficult and expensive to replicate. The company operates in two segments, performance chemicals and decorative products.

There are some heavyweights behind the stock as fund manager Mario Gabelli recently increased their stake in the company from 4.5% to 6.6%. Also, Hotchikis and Wiley High Yield Bond fund cites bonds issued by Omnova Solutions(OMN) as an example of their “bread-and-butter” fixed-income holdings. In its last earnings report, trailing-12-month revenue increased 12.4%, and inventory decreased 11.4%. The company continues to impress with solid earnings and there is no reason to think this will not continue into 2013.

The company had 2011 sales of $1.2 billion and has a global workforce of approximately 2,300. The company competes against generally larger companies in the industry such as H.B. Fuller, Cabot Corp and Avery Dennison Corp. The stock trades just above $7.00 a share and has a 52-week range of $4.70 to $8.99. Europe remains a drag on earnings but Omnova along with its competitors have been helped by a tepid yet slow housing recovery. Residential improvement has been increasing ever since the real estate crisis and OMN has been benefitting.

In November the company was able to expand their distribution by announcing a new partnership, increasing their presence on the west and southern coast. Earlier this year, OMNOVA unveiled the newest addition to its portfolio of chemistries for running track applications – GenCal 7463 SB latex binder. Based on Omnova’s robust carpet adhesive chemistry, GenCal 7463 provides better adhesion to rubber particles than traditional binders and delivers a good balance of strength and resilience within a water-based latex emulsion. This product has attracted a lot of attention amongst commercial customers and is expected to positively affect earnings in the first half of 2013. OMN looks like a great buy around$7.00 a share.

Broadcom (NASDAQ: BRCM) Worth a look in 2013

California based Broadcom (NASDAQ: BRCM) had a fairly good run in 2012. The Fortune 500 Company is an international semiconductor leader for wired and wireless communications. It supplies chips for everything from smartphones to cable boxes. It is also the principal supplier of chips for Apple’s (NASDAQ: AAPL) madly popular iPhone series. The business boasts a healthy product, cycle-driven strength that is a stand out among myriad competitors in a soft chip market. Additionally, for the first time in company history, Broadcom enjoyed over $2 billion in 2012 third quarter revenue.

The company provided a rock-solid third quarter to investors largely due to Apples success in the iPhone market. It is also benefitting greatly from its relationship with Samsung’s Galaxy products. Growth was up 14%, in all aread, not just in the large mobile wireless field. Net revenue was $2.13 billion. Net income was $220 million or $.38 per share compared with net income in the second quarter $160 million or $.28 a share. Broadcom’s strengths can be seen in a multitude of areas, such as its revenue increase, solid economic position with not unreasonable debt levels, a tidy cash flow from business operations, and ever expanding profit margins.

In 2011 Broadcom posted third quarter profits of $270 million or $.48 per share. Gross product margin for Q3 2012 was reported to be 48.8% and cash flow from operations was reported to be $621 million. These are GAAP results. Non- GAAP product gross margin was 52.1% and diluted EPS were $0.79. The higher revenue was balanced by increased investment in research and development. Also there was an 11% increase in manufacturing outlay. Shareholders shouldn’t be overly concerned over the 11% increase because it is essential for the company to sustain research and development expenditures, especially with tough competition from the likes of Qualcomm (NASDAQ: QCOM) and Nvidia (NASDAQ: NVDA).

Broadcom expects a fourth quarter drop in revenue to around $1.95 billion to $2.1 billion. Management attributes the expected decline to anemic demand for chips used in computer data infrastructure. Even with the expected decline, Broadcom is expected to outpace its peers. The company does remarkably well in connectivity and that trend will likely continue in the fourth quarter. With the unveiling of a new Ethernet chip-set (Trident II 10G) in early 2013, fourth quarter revenue deficits should recover nicely by Q2 of 2013.

Traditionally, Broadcom’s approach has been to find a way into a market then build complimentary know-how to enhance its foothold with manufacturers. It appears to be a sound strategy. It works for them and investors seem satisfied with the method.

There is some question however, as to how long Broadcom can appreciably outgrow its markets, but no one seems excessively concerned over this. In fact the community sentiment is bullish right now, with stock trading at $34. Also with shares up over 15% this year the company is a pretty good-looking option for perspective bargain hunters. Another plus is that Broadcom has a very diverse portfolio that adds to its eye-catching appeal. This is worth a hard look for the long-term.

Signet Jewelers (NYSE: SIG), The Secret Behind Kay and Jared

All that glitters may not necessarily be gold, but in the case of Signet Jewelers Ltd. (NYSE: SIG) the old adage appears to be untrue. Signet retails jewelry, watches, and myriad gifts in the United States and the United Kingdom. It is the leading specialty jeweler globally. Since 2008, the company has been quartered in Bermuda and its shares traded publically on the New York Stock Exchange. Signet is the undisputed king among specialty jewelry markets in both the United States and the United Kingdom. Most of this success can be attributed to their successful marketing and branding. Ever see the commercial declaring “Every kiss begins with Kay”? Or how about “He went to Jared”? Both are the result of the marketing genius of Signet.

Signet does a pretty good job of creating appealing product to distinguish their retail outlets from their competition. Offerings such as the Leo Diamond, touted as the only certified diamond to be more brilliant than all the rest, the Open Hearts Collection by Jane Seymour and the Le Vian Chocolate Diamond Collection are just three of the winning brand name ideas that set apart the Signet jewelry franchises from all the rest.

Signet’s performance has been extraordinary since 2008. Operating earnings growth has seen a healthy 22.9%, and the company shows no debt on its balance sheet. Their financial third quarter results, reported on November 20, 2012, show the company is continuing its robust performance. Signet hit a new 52-week high before Christmas trading at $56.56, above its previous 52-week high of $56.15. It is currently trading at $53.70. Average volume has been 668,456 shares over the past 90 days. The company has a market cap of $4.3 billion and is part of the services segment and specialty retail industry. Shares are up over 21% this year.

Kay was responsible for 48% of company sales in Fiscal 2012. The subsidiary operates 920 stores in all 50 states. Based on sales, Kay is the largest specialty retail jewelry store brand in the United States. The jewelry store targets families with an income of between $35,000 and $100,000. Another subsidiary, Jared, is the leading off-mall specialty retail jewelry store chain in its part of the market. Jared accounted for 25% of Signet’s sales in 2012.

Community sentiment is bullish on Signet at this time. The company has more strengths than weaknesses and there appears to be nothing to upset its strong performance in the near-term. No company is perfect and as with all perspective investments, we recommend research as the best route to adding any play to your portfolio.

MIPS Technology (NASDAQ: MIPS) A good Hunting Ground for the Processor Industry

There’s a lot of money to be made for investors who would want to join the patent war bandwagon. In fact, the easiest way is to identify smaller companies with high level of patent portfolio as the next acquisition target. For instance, Nokia (NASDAQ: NOK) has massive patent on its sleeves. It recently received an initial $65 million payment from Research in Motion (NASDAQ: RIMM) for the WLAN patent settlement from a few weeks ago. While Nokia’s business has struggled for the last few years, its patent-rich portfolio will make it a good acquisition target for bigger companies planning to move into the smartphone scene.

The processor industry is not far behind from its list of potential acquisition targets. Given the strong demand for tablets and smartphones, there is a constant to need to innovate to meet the consumer demands. However, it would be easy for bigger companies with significant cash to buy smaller companies than to invest in research and development.

Having said this, a company like MIPS Technology (NASDAQ: MIPS) would fit the description discussed above. MIPS Technology provides processor architectures and cores for digital homes, networking and mobile applications. Its clients include global semiconductor companies and system original equipment manufacturers. The majority of its revenues come from licensing of embedded processor intellectual property in the form of architectures and implementations.

For the last 5 years, earnings per share have grown by 7% compared to the overall decline of the industry. Operating margins have also been higher at 18.89%, implying that the company commands pricing power over its customers. Return on equity has also been higher at 13%, versus the industry’s average return of 3%.

Its chips have a minimalist and low power design, and have been popular with other embedded devices. This is similar to some of the ARM Holdings (NASDAQ: ARMH) processors. While ARM could easily buy MIPS at its current market cap, MIPS has already agreed to sell itself to Imagination Technologies Group (OTCBB: IGNMF). Shareholders will receive about $7.94 in cash for the $100 million deal. The deal will give Imagination access to 82 patents and will now have the right to license them. In addition to that, it will receive around $14 million a quarter that MIPS generate these days. It is expected to close in the first quarter of 2013 after it receives approval from both regulators and shareholders.

Investors planning to buy the shares will have limited upside of 2%, while risking the uncertainties between now and the date of payment to shareholders. Despite this scenario, an enterprising investor could easily look for the bigger companies in the processing industry. For instance, Intel (NASDAQ: INTC) currently trades at 8 times earnings and has a dividend yield of 4.38%. The potential double-bagger is just around the corner. A good tip: an investor could slowly move down to the processor-maker ladder and find out which companies have patents that Intel is interested.

Monster Worldwide (NYSE: MWW), Poised for Growth among its Peers

The Federal Reserve has stated that they intend to keep stimulus measures in place and interest rates at historical lows until the employment rate cracks the 6.5% level. The latest reading on the labor market showed November unemployment at 7.7%, despite a moderate increase in the change in non-farm payrolls of 150k. It is well understood that the unemployment rate can change despite conditions not improving, due to the fact that more individuals simply drop out of the workforce. The consensus by most banks is that the unemployment rate may not be crossed until the end of 2015. Most folks in the business community believe that the Fed’s new guidance will make it easier for companies to make financial decisions, as they will have a clearer idea as to when borrowing costs will begin to appreciate.

Companies that provide staffing services and are directly linked to the health of the labor market believe conditions will get better once there is more clarity in Washington. Monster Worldwide (NYSE: MWW) is a well-known online employment company that allows folks both in the private and public sector to view job opportunities, while allowing employers the ability to view candidates’ resumes. The company’s stock is trading around $5.40 with a market capitalization of $628 million. There is quite a bit of competition in the industry with largest being Robert Half International (NYSE: RHI), $4.42bln market cap, Manpower Inc. (NYSE: MAN), Kforce, Inc. (NASDAQ: KFRC), Dice Holdings (NYSE: DHX) and Heidrick & Struggles. The employment service industry is a very precarious sector as most companies have cut back on hiring until after issues such as the fiscal cliff and the debt ceiling have been resolved. During this time the sector has been mixed, with some companies seeing their stock price appreciate, while others have experienced a downfall.

There has been some insider buying in Monster as of late, with Michael McGuinness acquiring 2,500 shares in December. At the moment there is a 28% short interest in the stock, so a rebound in economic conditions will be accelerated by investors covering short positions. The stock is at an attractive level at $5.90 as it just above its 52-week low of $5.01 (high is $10.40). One of the biggest catalysts for the stock is the international growth that lies ahead for the company, as the competition in foreign market s is not as intense as in the U.S.

Once the fiscal cliff is resolved and companies are able to quantify their taxes and costs, both MWW and its competitors will do better. MWW is attractive right now due to the level at which it is trading and the name recognition in the industry. Also, MWW is one of the main stocks that benefit from the January effect, as it has outperformed the majority of the time. Many recruiters use other website and social networking apps in addition to utilizing Monster, and is considered a vital resource for human resources. A rebound from its current level is expected to be fairly robust with upside potential all the way up to 50% in 6-months.

Nathan’s Famous (NASDAQ: NATH) Delicious Investment

Nathan’s Famous, Inc. (NASDAQ: NATH) is the business name of the Nathan’s Famous brand bearing the Nathan’s Famous trademarks. Nathan’s is a quintessential part of New York history. The company was founded in Coney Island in 1916 and has been a legend ever since. No trip to Coney Island would be complete without stopping for a Nathan’s Famous hot dog. Nathan’s is truly part of the experience. You might be surprised to know that the company is traded publically and the numbers are extraordinary.

Though the almost century-old hot dog vendor may be small, with a market cap of just $148 million, it packs a big punch with mighty impressive sales growth over the past 10 years. As of 2012, the Nathan’s Famous restaurant system consisted of 268 franchised units and five company owned units located in 26 states and six foreign countries. Nathan’s Famous distributes its Nathan’s World Famous Beef Hot Dogs in all 50 states, Puerto Rico, Canada, Guam, and even Kuwait, who seems to have developed a taste for American hot dogs. The company’s pre-packaged hot dogs and other products are sold in over 31,000 supermarkets in 42 states.

The Numbers

The company reported third quarter EPS of $0.63, up over the $0.45 reported last year. Revenue for the quarter came in at $21.36 million as opposed to $19.12 million from a year ago. The company has a debt to equity ratio of 0%; an EPS diluted quarterly year-over year growth of 40.19%, and free cash flow of 4.103 million. Return on equity is currently 20.32%. Gross profit margin quarterly is 34.62%. Shares are currently trading at $33.70, near the top of its 52 week range. Amazingly, Nathan’s outperformed 482 of the stocks in the S&P 500 in 2012. This includes many of the big boys such as eBay (NASDAQ: EBAY), and Whole Foods (NASDAQ: WFM). What’s not to like?

The only fly in the ointment may be Nathan’s contract dispute with its chief licensee, SMG. A judge ruled in 2010 that Nathan’s could not end SMG’s license to make and package its goods and ordered Nathan’s to pony up $5 million in damages. The company is appealing the ruling, but the judgment did hurt its earnings.

The bottom line is that restaurants have found their way in the American markets. Many well-known chains are hitting all-time highs. The breakouts offer varied choices within the sector, and small-cap leaders such as Nathans Famous are well positioned to outperform based on sound marketing and business strategies. This might be a great place to invest as the calendar flips into 2013. As with any potential investment we recommend you do your homework before buying. A meal at your nearest Nathan’s might be a good start. Delicious indeed!